IBS Journal March 2018
41
For Tandem, it’s disadvantageous to aim for smaller sections of the market. Why go after pieces when you can aim for the whole pie? Knox says that Tandem operates on the principle of the “honest business of banking… If you have some extra cash, you have a number of options for what to do with it. You could lend it to a friend, but he might run off with it. You might decide to invest in the stock market or you might go low risk and put it in a bank and make low rates. What will happen then is your bank will take a risk on a dodgy customer and if he runs away they will take the loss, because they have to still give you your money back. That’s what I call the honest business of banking: I pay you 2%, he pays 7%, there’s a cost of regulatory capital, there’s a cost of loss and I make a margin of 1% or 2%. Everyone is a winner.”
There’s been a shift in strategy in the challenger market, continues Knox. “What we’ve seen is Anne [Boden, CEO and founder of Starling Bank] sticking to her guns on an API strategy and Tom [Blomfield, founder and CEO of Monzo] – after working with customers, discussing with competitors (including me) and throughl analysing the market – moving over to create a loans product, creating quasi-savings accounts through the pots system and generally moving the company in that direction,” he says. Tandem already has a selection of financial products out on the market, adds Knox, though it never plans to become a “product sales shop” but to wrap banking products around services that address customer needs. “We were never going to launch with a current account, and we’ll never be dependent on a current account. We believe that PSD2 and Open Banking will enable us to create digital experiences and services built around existing current accounts at other banks.”
Knox offers this by way of a final competitive summary: “I’ll probably compete with Atom for savings customers. To some extend I’m competing for the digital natives with Monzo and Starling but my target market is probably a little different from theirs. It’s a different demographic, a different age group with different proclivities.”
Opening up to Open Banking
Tandem Bank had several Open Banking and API-centric products in the works when IBS Journal first spoke with Knox. We ask how it felt to have been ahead of the game, when so many banks and companies have been caught off guard by such an important piece of legislation.
“I built my last business around PSD1, and when we set it up we ended up hoovering up smaller players who were struggling with the regulation,” says Knox. “So, the first thing I thought of, when looking what to do next, was PSD2 and Open Banking. I looked at how it might change the industry structure and so one of our very first presentations was about a ‘next generation bank’ that utilised Open Banking, as well as everything happening outside in the fintech world.”
Despite the implementation of PSD2, banks today are still struggling to grasp where the value really lies, continues Knox. “If you imagine the banking industry today as a doctor’s surgery, traditional banks
We were never going to launch with a current account, and we’ll never be dependent on a current account
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are letting the customers in and telling them to help themselves, without any guidance as to what they might need to solve their problem,” he says.
Knox illustrates a simple anxiety for a customer: not having enough money to make it to payday. “Do I get a loan? It doesn’t pay out for two weeks. Do I get a credit card? That’ll take a week. Do I need to go to some payday loans company and get saddled with huge repayments? Customers are turning to their banks and thinking ‘surely you can help me out’,” he says. “Your bank can’t help and it’s one of the keenest problems that customers experience.” Revolut is a prime example, states Knox. It’s not a bank but solves a widespread, specific problem. “They nailed that problem and they’ve built a company with a customer base of more than 1.2 million people off the back of it.”
Tandem is aiming to build solutions around case study problems like the one above, which it hopes will create “a coherent answer” to all the pain points that customers have with financial services. “Sometimes they will be profitable solutions for us and sometimes they won’t be profitable, but they will be huge for the customer,” he says. “That’s what we’re trying to do.”
www.ibsintelligence.com
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